Peter Thiel on How to Build a Monopoly

Billionaire Peter Thiel knows a thing or two about dominating markets: The 47-year-old entrepreneur and investor co-founded PayPal--one of the world's largest online payments systems--as well as Palantir Technologies, a secretive software company that federal agencies, state and local governments, as well as private finance and health care businesses have come to rely on.

Thiel's stance on market domination is a little...unconventional. He says that all companies should strive to build a monopoly. And by monopoly, as he explains in a recent essay in The Wall Street Journal, he means owning a market through which the business can set its own prices. Monopoly companies stand to create (and maintain) lasting value for themselves, Thiel says, citing Google as a good example.

Here are some of his top tips for making your own luck, and for building a monopoly while you're at it:

1. Start small

Thiel insists that every startup should start small, because it's easier to dominate a niche market than a larger, pre-existing one. Citing one of his earlier mistakes, Thiel recalls that PayPal initially let users send each other money via PalmPilots--a market that was, ultimately, too large and too spread out for them to control. PayPal then pivoted to work with eBay auctioneers instead, a smaller grouping of a few thousand "PowerSellers" who were easier to reach.

First things first, according to Thiel: Cast a narrow net, and really concentrate on serving those particular customers.

2. Scale upwards--but by degrees

Once you've monopolized your own, small market, you can "gradually expand into related and slightly broader markets," the investor continues.

To illustrate this point, Thiel notes the success of e-commerce titan Amazon: In the beginning, he writes, Amazon set its sights exclusively on books. Once it had evolved to become the go-to book retailer, it then began selling CDs, videos, and software. It entered separate yet related markets that would be similarly possible to monopolize.

3. Forget about "disruption"

Thiel has a bone to pick with the word "disruption," which has entered the popular Silicon Valley lexicon.

Initially, the word signified the process by which companies would introduce new products at low prices, gradually improve upon them, and eventually overtake their premium competitors. Thiel argues that now disruption has come to mean something entirely different:

"Disruption has recently transmogrified into a self-congratulatory buzzword for anything trendy and new. This seemingly trivial fad matters because it distorts an entrepreneur's self-understanding in an inherently competitive way."

Creation, says Thiel, is far more important than beating out the competition. If you try to go head-to-head with an adjacent venture, you're more likely to lose everything.

4. Focus on the endgame

Startups are often focused on being the very first to enter the market--Thiel cites the notion of "first-mover advantage," meaning that if you arrive first, you can reap the benefits first. But he cautions that it's actually better to start slowly and identify clear goals. What do you see your business doing a year from now?